The All Party Parliamentary Group (APPG) on Blockchain was set up in January 2018 with a purpose of ensuring industry and society benefit from the full potential of blockchain and other distributed ledger technologies (DLT) making the UK a leader in Blockchain/DLT’s innovation and implementation.

In evidence meeting 2, the group discussed the impact of Blockchain and Distributed Ledger Technologies on supply chains optimisation with a purpose of exploring how blockchain and DLTs can support SUPPLY CHAIN MANAGEMENT AND OPTIMISATION.

III. SPEAKERS

Jens Munch Lund-Nielsen – Head of Global Trade & Supply Chain, IOTA

Sarvi Banisadr – Individual Consultant

Alpesh Doshi – Founder & CEO, Fintrincity

Antony Welfare -Innovation Strategy Director, Oracle

IV. QUESTIONS FOR INSPIRATION

How does blockchain impact industries and supply chain management in the public sector?

What is the development of blockchain database usage in industrial sectors?

How does blockchain influence our conception of sustainability and consumer choice within the supply chain?

V. SETTING THE SCENE

Blockchain and Distributed Ledger Technologies (DLTs) are a natural fit when it comes to supply chain management.

Benjamin Herzberg from the World Bank institute recently emphasised ‘For many companies, openness of data can translate into more efficient governance frameworks, enhanced feedback from workers and employees, improved traceability of supply chains, accountability to end consumers, and better service and product delivery. Open and collaborative private sector practices are thus a true win-win: they impact the bottom line and also correlate with governance, environmental and social gains’.

With any disruptive technology, an agile structure must become an integral part of a firm’s strategy. The linear supply chains of ‘plan-source-make-deliver’ are becoming transformed into a growing networked system. The ability of AI to automate, augment and enhance customer experience and edition-making is due to the AI, Blockchain and digital technologies available today. AI and blockchain and digitisation can be applied across the supply chain activities, distribution, communication and logistics to enhance the customer experience. AI and Blockchain technologies can optimise supply chains by providing problem-based specific solutions within these stages. The problems addressed via AI usually arise during data handling, analysis in finance, operations and logistics planning or managing inventories. AI and Blockchain enabled solutions can assist supply chains with a streamlined process including: precision planning; efficiency in the process that shapes consumer markets; and near-perfect logistics and transport such as shipping. It will produce higher speed, better quality and more ethical services at significantly lower costs.

The digital transformation of industries has now entered a new phase. Digital disruptive technologies, such as Blockchain, AI and physical devices, such as IOT and Drones, are now beginning to transform and re-think industries.

Not only are these disruptive technologies enabling improved digital products, but also decentralized business models are emerging that will transform industries over the next few years. With the invention of distributed ledger technology, we’re now seeing the creation of a new parallel economy, a decentralized economy.

One of the most important areas in which Distributed Ledger Technologies (DLT) and Blockchain are applicable is in any supply chain. Every supply chain by its nature is a group of individuals companies, governments and intermediaries that inherently need to share information, establish trust, and get paid for the services they provide. The legacy processes and procedures that have developed in implementing these supply chains cause perennial problems, such as documentation errors, reconciliation issues, supply chain financing, intermediary costs and title transfer problems. With the advent of DLTs the ability to establish trust, in a trustless environment, and to digitize processes provides the opportunity to transform industries. DLTs will enable the creation of multiple business networks that can help solve existing problems, but also provide the opportunity to reinvent supply chains.

Combined with AI, and other disruptive technologies, DLTs and decentralized business models are likely to change supply chains over the next few years.

Tech will have massive impact on global trade and supply chains

Surprisingly, the cost of administration and communication is comparable with the cost of transporting a container. Having a trusted and shared ledger for all actors to access (given different access privilege), will massively enhance supply chain coordination, reduce misunderstandings, allow for better asset utility and generally reduce the cost of trade. By same principle, it can bring deeper transparency into origin of products, the provenance of products, which will support sustainability efforts of labelling products as Fair Trade, Rainforest Alliance or any other certifications. As a product change custody, its certifications can be accessed and easily audited through its full chain of custody – back to its provenance. This transparency principle also enables the fight against counterfeit products, as each product can have a unique digital identity on the ledger that cannot be copied for forfeit products. Thus, through a product’s lifetime, it can easily be checked by both consumers, customs and different supply chain actors. Making it much harder for counterfeit products to enter our supply chains.

Blockchain is not just Blockchain

Distributed ledger technology has developed over the last 10 years. Classic blockchain technology needs miners and use vast amount of energy. Transactions are costly and there are serious limits to the maximum number of transactions per second. At the moment, the best known blockchain technologies like Bitcoin and Ethereum can only do around 5 and 15 TPS – for the whole network, which is not sustainable for supply chain use where we are talking 1000’s of transactions per second and potentially much more. As example, IOTA, is a third-generation technology – it is actually not a blockchain but what is called a DAG -Directed Acyclic Graph. The technology is still in Beta-phase but has been tested for 1000’s of TPS, it is open-source technology, freely available, there are no miners, very light-weight using very little energy, and all transactions a fee-less. The foundation is a not-for- profit registered in Germany but with strong management foot print in UK. Thus, before applying and testing different technologies, it is recommended to develop a list of features that the solution needs – and then match with available technology in the market.

Antony Welfare, innovation Strategy Director at Oracle said Blockchain technology provides an ‘entirely new way of looking at commerce and a very simplified version of the Blockchain potential’. Among the ‘significant benefits’ of these technologies he listed:

‘Supply chain transparency, open visibility across the supply chain’,

‘improved order tracking’,

‘supplier trust and openness’,

‘alignment with IoT and GPS tracking’, and

‘preventing the production of counterfeit products’.

Antony Welfare – Innovation Strategy Director, Oracle

Antony Welfare – Innovation Strategy Director, Oracle

Speaker Contribution

The digital transformation of industries has now entered a new phase. Digital disruptive technologies, such as Blockchain, AI and physical devices, such as IOT and Drones, are now beginning to transform and re-think industries.

Not only are these disruptive technologies enabling improved digital products, but also decentralized business models are emerging that will transform industries over the next few years. With the invention of distributed ledger technology, we’re now seeing the creation of a new parallel economy, a decentralized economy.

One of the most important areas in which Distributed Ledger Technologies (DLT) and Blockchain are applicable is in any supply chain. Every supply chain by its nature is a group of individuals companies, governments and intermediaries that inherently need to share information, establish trust, and get paid for the services they provide. The legacy processes and procedures that have developed in implementing these supply chains cause perennial problems, such as documentation errors, reconciliation issues, supply chain financing, intermediary costs and title transfer problems. With the advent of DLTs the ability to establish trust, in a “trustless” environment, and to digitize processes provides the opportunity to transform industries. DLTs will enable the creation of multiple business networks that can help solve existing problems, but also provide the opportunity to reinvent supply chains.

Combined with AI, and other disruptive technologies, DLTs and decentralized business models are likely to change supply chains over the next few years. The basic premise of Blockchain is a decentralised, open ledger of information (to allowed participants), where the data is held on many distributed ledgers around the world. All ledgers hold the same information for the data in question and any changes to this data are trackable, with all ledgers carrying the same copy of the data, meaning transparency and trust across the network.

The key to blockchain is the decentralised ledger, which reduces the systems issues and interfaces. In the traditional model, you would have separate providers of information sending data via APIs or EDI, which takes time and is prone to errors.

Reflecting on the questions for inspiration for the session, Patrick Curry of the British Business Federation Authority (BBFA) especially focused on the improved quality of relationships along the supply chain and huge impact Blockchain will have on productivity and transaction cost efficiency.

Patrick Curry – British Business Federation Authority

Guest Contribution

What impact does this have on an organisation/customer relationship? It isn’t so much the relationship as the interaction. Improving the quality of the interaction can improve the relationship and vice versa. BCs can improve the interaction through reduced cost, increased speed and provision of assured data and audit.

Will supply chain transparency affect the attitudes of ‘consumers’? Only the smart ones, who see that an improvement in benefits derives significantly from supply chain transparency, i.e. that participants in the supply chain get to see the same data at the same time, but under control. Control is essential to meet requirements such as privacy and counter-fraud. Hence there will likely be blockchains used to support other supply chain blockchains, e.g. for audit and access control.

How will blockchain systematise sustainable production? I don’t see that BCs will provide any unique benefit to sustainable production that isn’t already systemised.

What is the development of blockchain database usage in industrial sectors? Loads and it is growing daily – far too much to say here. However, this is a poor question because a blockchain isn’t a true database. It is a transaction record or distributed ledger. Not the same.

James Pitcher of Z/Yen added a contribution from the Centre for Economics and Business Research (Cebr)) which provide some relevant supporting information

James Pitcher – Z/Yen

Guest contribution

What impact does this have on an organisation/customer relationship? In theory, Smart Ledgers take the need for trust out of a relationship, so potentially positive in terms of immutability, efficiency and validation, but perhaps negative in terms of perceived trust, value in the relationship etc.

Will supply chain transparency affect the attitudes of ‘consumers’? Consumers will primarily be concerned with costs and efficiency, so broadly speaking a positive impact on attitudes, perhaps once initial scepticism has been overcome.

“How will blockchain systematise sustainable production?” – The Preface, written by Professor Michael Mainelli and the Executive Summary in that report by the Centre for Economics and Business Research (Cebr)) provide some relevant supporting information to [.. ] how blockchain impact industries and supply chain management in the public and private sector.

What is the development of blockchain database usage in industrial sectors? Please refer to Appendix 1 of the report – the survey results from the International Association for Contract & Commercial Management (IACCM), which received feedback on this and other questions from 247 of its global members. Notably perhaps “While over 30% of respondents were unaware of this technology, and 25% were sceptical, it is perhaps encouraging to see that the highest percentage, over 36%, are planning trials or collaborations. This is balanced somewhat by the fact that only 3.33% are presently using.”

VII. DISTRIBUTED ECONOMY, COMPETITION AND GOVERNANCE

Alpesh Doshi pointed out: ‘With the invention of distributed ledger technology, we’re now seeing the creation of a new parallel economy, a decentralised economy’. The nature of Distributed Ledger Technologies allowing transparency and trust between two ledgers means the logistic sector will start to experience significant disruption in the coming years.

Alpesh Doshi – Founder & CEO, Fintrincity

Speaker Contribution

The digital transformation of industries has now entered a new phase. Digital disruptive technologies, such as Blockchain, AI and physical devices, such as IOT and Drones, are now beginning to transform and re-think industries.

Not only are these disruptive technologies enabling improved digital products, but also decentralized business models are emerging that will transform industries over the next few years. With the invention of distributed ledger technology, we’re now seeing the creation of a new parallel economy, a decentralized economy.

One of the most important areas in which Distributed Ledger Technologies (DLT) and Blockchain are applicable is in any supply chain. Every supply chain by its nature is a group of individuals companies, governments and intermediaries that inherently need to share information, establish trust, and get paid for the services they provide. The legacy processes and procedures that have developed in implementing these supply chains cause perennial problems, such as documentation errors, reconciliation issues, supply chain financing, intermediary costs and title transfer problems. With the advent of DLTs the ability to establish trust, in a trustless environment, and to digitize processes provides the opportunity to transform industries. DLTs will enable the creation of multiple business networks that can help solve existing problems, but also provide the opportunity to reinvent supply chains.

Combined with AI, and other disruptive technologies, DLTs and decentralized business models are likely to change supply chains over the next few years.

Blockchain technology will also provide new paradigms for understanding how we conceptualise transfer and consider value.

Sarvi Banisadr pointed out that ‘the evidence is more than compelling, however, mass adoption is critical, collaboration is hard to achieve, the technology is evolving but ownership will be an issue, and the concept of DLT as a philosophy is somewhat at odds with the stakeholders of the logistics sector’.

Sarvi Banisadr – Individual Consultant

Speaker Contribution

For me as a doctor, the global understanding of The Hippocratic Oath, or the first bill of human rights, is synonymous with the current opportunity to endorse a global bill of access (to tech) rights.

With each smart phone as an individual’s digital proxy generating masses of data, currently promoting the emergence of data borders, the repercussions are catastrophic if allowed to evolve. Hence the inevitability of borderless data flow.

Making this happen requires a vast infrastructure to come into play and above all the will to collaborate. Coopetition examples show us how to achieve collaboration in an as efficient way as possible. The alternative being a good story, such as the human genome project. Either way, it will need a top down approach of giving instruction to multiple stakeholders, in multiple industries, among multiple different continents/countries/borders with different regulatory systems to comply with one system that facilitates data flow.

It is encouraging that China has looked at GDPR to structure its own cybersecurity law since regulatory harmonisation will be a critical step, that together with evidence of disruption on such a scale that is eye-opening: such as world trade – hence the relevance of this APPG_blockchain meeting.

I presented three case studies on how distributed ledger technology (DLT) affords system flow optimisation.

The evidence is more than compelling, however, mass adoption is critical, collaboration is hard to achieve, the technology is evolving but ownership will be an issue, and the concept of DLT as a philosophy is somewhat at odds with the stakeholders of the logistics sector.

Professor Vili Lehdonvirta, associate professor at Oxford Internet Institute, discussed the paradox of blockchain technologies and explored the implications of third parties:

‘…reputation…only works within communities where reputational information spreads effectively’ […] ‘it can enforce contracts, prevent double spending, and cap the size of the money pool all without participants having to cede power to any particular third party who might abuse the power. No rent-seeking, no abuses of power, no politics – blockchain can be used to create ‘math-based money’ and ‘unstoppable’ contracts that are enforced with the impartiality of a machine instead of the imperfect and capricious human bureaucracy of a state or bank’.

On the other hand, however, blockchain provides a governance challenge. There is no formal process for how governance works in blockchain. It is an issue for government to re-consider governance structures along supply chains.

VIII. TRADE FACILITATION

Distributed Ledger Technologies help improve trade facilitation processes, accurately assess and programme in ethical production processes. It improves transparency through each stage of the supply chain having a visible ledger, simplifies through its automated nature, harmonises through redistribution of value: regulating divestment in overtly energy-consumptive supply chains and transferring value to sustainable supply chain and/or sustainable product development.

The 4 pillars of trade facilitation principles according the UNECE (UN Economic Commission for Europe) include:

Transparency

Simplification

Harmonisation

Standardisation

Jens Munch Lund-Nielsen, Head of Global Trade & Supply Chain, IOTA

Speaker contribution

Government: Focus on Trade Reconciliation Processes

Manage paper trail and customs procedures of moving goods across borders, including: e-approvals and e-permits on official documents such as certificate of origin, health and safety documents, customs approvals and release of goods – are such common good services. It is estimated that the cost of trading across UK borders is around 4.2% (of a good’s price) compared with an average applied tariff cost of 2.7%. In other words, more impact can be gained from focussing on these process then on trade agreements concerning tariffs only. The benefit of this focus will be double; It will simplify and bring costs down of trade overall. In addition, such a system will also fuel private innovation. As many of this documents and events build for business-to-government interaction, can also be used for simplifying other supply chain processes, such as obtaining trade finance and insurance.

By principle, DLTs can bring deeper transparency into the origin of products, the provenance of products, which will support sustainability efforts of labelling products. Advances are being made in London with regard to supply chain sustainability: Project Provenance, founded by Jessi Baker suggests:

‘The choices we make in the marketplace determine which business practices thrive. From a diamond mine to a tree in a forest, it is the deepest darkest ends of supply chains that damage so much of the planet and its livelihood. This new system could be a unanimous source of connected information, secure and incorruptible, to allow the purchasing decisions throughout supply chains and by end consumers to be smarter. The premium cost of ‘Fair trade labour’ and ‘sustainably farmed’, and other socially and environmentally beneficial product and business affordances, are intangible, but increase the value of goods: With Provenance, they can be understood, carried and trusted as they travel the most complex chain of custody’.

Prof. Birgitte Andersen, Big Innovation Centre added: ‘Impact on society and the economy at whole are also key’. The standardisation of ethical and agile supply chain is therefore a key role the government must take in being involved in leadership with this innovative technology

The synthesis of Distributed Ledger Technologies and Artificial Intelligence will help encourage trust in this sense. A recent Hours of Lords Select Committee Report on AI (AI in the UK: ready, willing and able? 16 April 2018) also argued: “The UK has a unique opportunity to shape AI positively for the public’s benefit”.

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